Академический Документы
Профессиональный Документы
Культура Документы
2,24,384
Building
900000
365
91
2,24,384
Furniture
100000
365
91
24,932
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25
In the hands of the LLP ( 274 days)
Plant and machinery
900000
365
274
6,75,616
Building
900000
365
274
6,75,616
Furniture
100000
365
274
75,068
(4) The cost of acquisition of land in the hands of the LLP would be the cost for
which A Pvt. Ltd. acquired it, i.e., Rs.50 lakh.
(5) The LLP would be eligible for deduction of Rs.10 lakh each for the P.Y.2010-
11, P.Y.2011-12 and P.Y.2012-13 under section 35DDA.
(Effective from A.Y.2011-12)
7. INCOME FROM OTHER SOURCES
(a) Transfer of immovable property for inadequate consideration to be outside the
ambit of section 56(2)
(i) Last year, transfer of property without consideration or for inadequate
consideration was brought within the ambit of section 56(2) by the Finance
(No.2) Act, 2009.
(ii) This amendment has resulted in genuine problems in case of certain
immovable property transactions like builders contracts, where there is a time
gap of few years between the booking of property and its actual registration.
The price of the property generally appreciates over these intermittent years.
Consequently, there may be considerable difference between the price at
which the property was initially booked and the value of property at the time of
possession. The provisions of section 56(2)(vii) were attracted in respect of
such transactions also. This resulted in undue hardship even in genuine cases
of transfer of immovable property.
(iii) In order to mitigate this hardship, transfer of immovable property for
inadequate consideration has been removed from the scope of applicability of
section 56(2)(vii), from the date of introduction of this provision i.e., from 1
st
October, 2009. In effect, transfer of immovable property for inadequate
consideration would always be outside the ambit of section 56(2)(vii).
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(iv) However, transfer of immovable property without consideration would continue
to attract the provisions of section 56(2)(vii), if the stamp duty value of such
property exceeds Rs.50,000.
(v) Further, in respect of property other than immovable property, section
56(2)(vii) would apply to transfer without consideration as well as transfer for
inadequate consideration. The provisions of this section would apply in case of
transfer without consideration, where the aggregate fair market value of such
property exceeds Rs.50,000, and in case of transfer for inadequate
consideration, where the difference between the aggregate fair market value
and the sale consideration exceeds Rs.50,000.
(Effective from 1
st
October, 2009)
(b) Scope of definition of property, for the purpose of section 56(2)(vii), amended
(i) Last year, clause (vii) was inserted in section 56(2) to bring within its scope,
the value of any property received without consideration or for inadequte
consideration. For this purpose, property was defined to mean immovable
property being land or building or both, shares and securities, jewellery,
archaeological collections, drawings, paintings, sculptures or any work of art.
(ii) If property, other than immovable property, is received without consideration,
the aggregate fair market value of such property on the date of receipt would
be taxed as the income of the recipient if it exceeds Rs.50,000. In case such
property is received for inadequate consideration, and the difference between
the aggregate fair market value and such consideration exceeds Rs.50,000,
such difference would be taxed as the income of the recipient. The fair market
value of such property means the value determined in accordance with the
method as may be prescribed [See Notification No.23/2010 dated 8.4.2010
on pages 54-57].
(iii) It has now been clarified that section 56(2)(vii) would apply only to property
which is the nature of a capital asset of the recipient and not stock-in-trade,
raw material or consumable stores of any business of the recipient. Therefore,
only transfer of a capital asset, without consideration and transfer of a capital
asset, other than immovable property, for inadequate consideration would
attract the provisions of section 56(2)(vii). This provision would take effect
retrospectively from 1
st
(iv) Further, with effect from 1
October, 2009.
st
June, 2010, bullion has also been included in the
definition of property. Therefore, transfer of bullion would also fall within the
scope of section 56(2)(vii), if its aggregate fair market value exceeds Rs.50,000
or in case of transfer for inadequate consideration, if the difference between the
aggregate fair market value and the sale consideration exceeds Rs.50,000.
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Example
Mr. A, a dealer in shares, received the following without consideration during
the P.Y.2010-11 from his friend Mr. B, -
(1) Cash gift of Rs.75,000 on his anniversary, 15
th
(2) Bullion, the fair market value of which was Rs.60,000, on his birthday,
19
April, 2010.
th
(3) A plot of land at Faridabad on 1
June, 2010.
st
Mr.A purchased from his friend C, who is also a dealer in shares, 1000 shares
of X Ltd. @ Rs.400 each on 19
July, 2010, the stamp value of which is
Rs.5 lakh on that date. Mr.B had purchased the land in April, 2005.
th
June, 2010, the fair market value of which
was Rs.600 each on that date. Mr.A sold these shares in the course of his
business on 23
rd
Further, on 1
June, 2010.
st
November, 2010, Mr. A took possession of property (building)
booked by him two years back at Rs.20 lakh. The stamp duty value of the
property as on 1
st
On 1
November, 2010 is Rs.32 lakh.
st
Compute the income of Mr. A chargeable under the head Income from other
sources and Capital Gains for A.Y.2011-12.
March, 2011, he sold the plot of land at Faridabad for Rs.7 lakh.
Computation of Income from other sources of Mr.A for the A.Y.2011-12
Particulars Rs.
(1) Cash gift is taxable under section 56(2)(vii), since it
exceeds Rs.50,000
75,000
(2) Bullion has been included in the definition of property w.e.f.
1.6.2010. Therefore, when bullion is received without
consideration after 1.6.2010, the same is taxable, since the
aggregate fair market value exceeds Rs.50,000
60,000
(3) Stamp value of plot of land at Faridabad, received without
consideration, is taxable under section 56(2)(vii)
5,00,000
(4) Difference of Rs.2 lakh in the value of shares of X Ltd.
purchased from Mr. C, a dealer in shares, is not taxable as
it represents the stock-in-trade of Mr. A. Since Mr. A is a
dealer in shares and it has been mentioned that the shares
were subsequently sold in the course of his business, such
shares represent the stock-in-trade of Mr. A.
-
(5) Appreciation in the value of immovable property between the
time of its booking and its actual registration is outside the
scope of section 56(2)(vii).
-
Income from Other Sources 6,35,000
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Computation of Capital Gains of Mr.A for the A.Y.2011-12
Sale Consideration 7,00,000
Less: Cost of acquisition [deemed to be the stamp value
charged to tax under section 56(2)(vii) as per section 49(4)]
5,00,000
Short-term capital gains 2,00,000
Note The resultant capital gains will be short-term capital gains since for
calculating the period of holding, the period of holding of previous owner is not
to be considered.
(c) Transfer of shares without consideration or for inadequate consideration to
attract the provisions of section 56(2) in case of recipient firms and
companies also [Section 56(2)(viia)]
Related amendment in sections: 2(24), 49 and 142A
(i) New clause (viia) has been inserted in section 56(2) to provide that the transfer
of shares of a company without consideration or for inadequate consideration
would attract the provisions of section 56(2), if the recipient is a firm or a
company. The purpose is to prevent the practice of transferring unlisted shares
at prices much below their fair market value.
(ii) If such shares are received without consideration, the aggregate fair market
value on the date of transfer would be taxed as the income of the recipient firm
or company, if it exceeds Rs.50,000. If such shares are received for
inadequate consideration, the difference between the aggregate fair market
value and the consideration would be taxed as the income of the recipient firm
or company, if such difference exceeds Rs.50,000.
(iii) However, the provisions of section 56(2)(viia) would not apply in the case of
transfer of shares -
(1) of a company in which the public are substantially interested; or
(2) to a company in which the public are substantially interested.
(iv) Certain transactions are exempted from the application of the provisions of this
clause, namely, transactions covered under the following sections:
Section Transaction
47(via) Transfer of shares held in an Indian company, in a scheme of
amalgamation, by the amalgamating foreign company to an
amalgamated foreign company.
47(vic) Transfer of shares held in an Indian company, in a scheme of
demerger, by the demerged foreign company to a resulting
foreign company.
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47(vicb) Transfer by a shareholder, in a business reorganization, of
shares held in the predecessor co-operative bank, in
consideration of the allotment of shares in the successor co-
operative bank.
47(vid) Transfer or issue of shares by the resulting company, in a
scheme of demerger, to the shareholders of the demerged
company in consideration of demerger of the undertaking.
47(vii) Transfer by a shareholder, in a scheme of amalgamation, of
shares in the amalgamating company in consideration of
allotment to him of shares in the amalgamated Indian company.
(v) The definition of income under section 2(24) would now include any sum of
money or value of property referred to in section 56(2)(vii) or section
56(2)(viia).
(vi) Section 49(4) has been amended to provide that where the capital gain arises
from the transfer of such property which has been subject to tax under section
56(2)(vii) or section 56(2)(viia), the cost of acquisition of the property shall be
deemed to be the value taken into account for the purpose of section 56(2)(vii)
or section 56(2)(viia).
(Effective from 1
st
(vii) Section 142A(1) has been amended to enable the Assessing Officer to make a
reference to the Valuation Officer for making an estimate of the fair market
value of any property referred to in section 56(2).
June, 2010)
(Effective from 1
st
8. DEDUCTIONS FROM GROSS TOTAL INCOME
July, 2010)
(a) Deduction for investment in long-term infrastructure bonds [Section 80CCF]
(i) At present, there is cap of Rs.1 lakh on the savings qualifying for deduction
from gross total income, and this embraces all forms of eligible savings
through different instruments, whether it be contribution to provident fund,
public provident fund, pension fund, subscription to ELSS, NSC or payment of
life insurance premium. This ceiling is provided in section 80CCE for the
investments/contributions covered under section 80C, 80CCC & 80CCD.
(ii) In order to give a fillip to the infrastructure sector, the investment in this sector
is to be encouraged by providing an additional deduction of up to Rs.20,000
under new section 80CCF to individuals and HUFs exclusively for subscription
to notified long-term infrastructure bonds during the financial year 2010-11.
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(iii) Example
The gross total income of Mr.X for the A.Y.2011-12 is Rs.7,00,000. He has
made the following investments/payments during the F.Y.2010-11 -
Particulars Rs.
(1) Contribution to PPF 50,000
(2) Payment of tuition fees to Cambridge School, Noida,
for education of his daughter studying in Class V
36,000
(3) Repayment of housing loan taken from HDFC 40,000
(4) Contribution to approved pension fund of LIC 10,000
(5) Subscription to notified long-term infrastructure bonds 25,000
Compute the eligible deduction under Chapter VI-A for the A.Y.2011-12.
Computation of deduction under Chapter VI-A for the A.Y.2011-12
Particulars Rs.
Deduction under section 80C
(1) Contribution to PPF 50,000
(2) Payment of tuition fees to Cambridge School, Noida,
for education of his daughter studying in Class V
36,000
(3) Repayment of housing loan taken from HDFC 40,000
1,26,000
Deduction under section 80CCC
(4) Contribution to approved pension fund of LIC 10,000
1,36,000
As per section 80CCE, the aggregate deduction under section
80C, 80CCC and 80CCD has to be restricted to Rs.1 lakh
1,00,000
Deduction under section 80CCF
(5) Subscription to notified long-term infrastructure bonds,
Rs.25,000, but restricted to Rs.20,000, being the
maximum deduction allowable under section 80CCF
20,000
Deduction allowable under Chapter VIA for the A.Y.2011-12 1,20,000
(Effective for A.Y.2011-12)
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(b) Deduction in respect of contribution to Central Government Health Scheme
[Section 80D]
(i) Section 80D provides for deduction of upto Rs.15,000 for mediclaim premium
paid by an individual to insure the health of self, spouse and dependent
children. If any of the persons mentioned above are senior citizens, the
maximum deduction would be Rs.20,000 instead of Rs.15,000.
(ii) A further deduction of upto Rs.15,000 is provided for mediclaim premium paid
by him to insure the health of his parents, whether or not they are dependent
on him. If either of the parents are senior citizens, the maximum deduction
would be Rs.20,000 instead of Rs.15,000.
(iii) Government employees, including retired employees of the Government, and
employees of certain autonomous bodies contribute every month to the Central
Government Health Scheme (CGHS) to avail of medical benefits under such
scheme.
(iv) It has now been provided that contribution to CGHS by such persons would be
eligible for deduction section 80D, however, subject to the overall limit
specified in (i) above.
(v) Example
Mr. Y, aged 40 years, paid medical insurance premium of Rs.12,000 during the
P.Y.2010-11 to insure his health as well as the health of his spouse and
dependent children. He also paid medical insurance premium of Rs.21,000
during the year to insure the health of his father, aged 67 years, who is not
dependent on him. He contributed Rs.2,400 to Central Government Health
Scheme during the year. Compute the deduction allowable under section 80D
for the A.Y.2011-12.
Deduction allowable under section 80D for the A.Y.2011-12
Particulars Rs.
(i) Medical insurance premium paid for self, spouse and
dependent children
12,000
(ii) Contribution to CGHS 2,400
(iii) Mediclaim premium paid for father, who is over 65 years of age
(Rs.21,000 but restricted to Rs.20,000, being the maximum
allowable)
20,000
34,400
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Note The total deduction under (i) and (ii) above should not exceed
Rs.15,000. In this case, since the total of (i) and (ii) (i.e., Rs.14,400) does not
exceed Rs.15,000, the same is fully allowable under section 80D.
However, had the medical insurance premium paid for self, spouse and
children been Rs.14,000 instead of Rs.12,000, then, the total of Rs.16,400
(i.e., Rs.14,000 + Rs.2,400) under (i) and (ii) above would be restricted to
Rs.15,000. In such a case, the total deduction allowable under section 80D
would be Rs.35,000 [i.e., Rs.15,000 [(i) & (ii)] + Rs.20,000 (iii)].
(Effective from A.Y.2011-12)
(c) Relaxation of conditions for housing projects approved on or after 1.4.2005
[Section 80-IB(10)]
(i) An undertaking developing and building housing projects approved by a local
authority before 31.3.2008 is eligible for deduction of 100% of the profits from
such project under section 80-IB(10), if it fulfills certain conditions.
(ii) One of the conditions is that the project has to be completed within 4 years
from the end of the financial year in which the project is approved by the local
authority. Further, the built-up area of the shops and other commercial
establishments included in the housing project should not exceed 5% of the
total built-up area of the housing project or 2,000 sq.ft., whichever is less.
(iii) On account of the large scale widespread downturn and the consequent slump
in the housing sector, the period for completion of housing projects to qualify
for tax benefit under section 80-IB has been extended from 4 years to 5 years
from the end of the financial year in which the housing project is approved by
the local authority, in case of housing projects approved on or after 1.4.2005.
(iv) Further, the present restrictions regarding built-up area of shops and other
commercial establishments have been relaxed in respect of housing projects
approved on or after 1.4.2005. The permissible built-up area of shops and
other commercial establishments included in the housing project has been
increased from 5% of the aggregate built-up area or 2,000 sq. feet, whichever
is lower, to 3% of the aggregate built-up area of the housing project or 5,000
sq. ft., whichever is higher.
(v) However, these benefits are not available in respect of a housing project
approved by the local authority before 1
st
(Effective from A.Y.2010-11)
April, 2005.
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(d) Extension of terminal date for functioning of hotels and construction of
convention centres from 31.3.2010 to 31.7.2010 [Section 80-ID]
(i) Section 80-ID provides a five-year tax holiday to new two, three and four star
hotels and convention centres set up in the National Capital Region in view of
the upcoming commonwealth games.
(ii) For availing this benefit, such hotel should start functioning or convention
centre should be constructed at any time during the period from 1.4.2007 to
31.3.2010.
(iii) The terminal date has been extended from 31.3.2010 to 31.7.2010 in order to
give more time for the facilities to be set up in view of the upcoming
Commonwealth Games in October, 2010.
(Effective from A.Y.2011-12)
9. ASSESSMENT OF VARIOUS ENTITIES
(a) Increase in rate of MAT as well as its scope of coverage [Section 115JB]
(i) Section 115JB provides that in the case of a company, where 15% of its book
profit exceeds the tax on its total income, then the book profit shall be deemed to
be the total income and the tax payable on such total income shall be 15% thereof.
(ii) The rate of MAT has been increased from 15% to 18% of book profits.
(iii) With effect from A.Y.2011-12, if tax on the total income of a company is less
than 18% of its book profit, then MAT provisions are attracted and the book
profit is deemed to be the total income and tax is payable @ 18% thereof.
(iv) The effect of this amendment is that more companies would fall under the MAT
net, since, those companies whose tax on total income is higher than 15% of
book profit but lower than 18% of book profit would also be required to pay
MAT. Further, their tax burden and cash outflow would be higher on account
of the increase in rate of MAT from 15% to 18%.
(v) Example
If the tax payable by a company, say A Ltd., on the total income is Rs.16 lakh
and the book profit is Rs.100 lakh, MAT provisions would not have been
attracted under the earlier provisions since tax on total income is higher than
Rs.15 lakh (i.e. 15% of book profit). However, w.e.f. A.Y.2011-12, MAT
provisions would be attracted in this case, since tax on total income (i.e.Rs.16
lakh) is less than Rs.18 lakh (i.e.18% of Rs.100 lakh). Therefore, the book
profit of A Ltd. i.e. Rs.100 lakh shall be deemed to be its total income for
A.Y.2011-12 and MAT would be payable @18%.
(Effective from A.Y.2011-12)
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(b) Computation of profits and gains of non-life insurance business [Rule 5 of the
First Schedule to the Income-tax Act]
(i) The profits and gains of non-life insurance business has to be determined in
the manner laid down under section 44 read with Rule 5 of the First Schedule.
(ii) As per Rule 5, the profits and gains of non-life insurance business would be
the profit before tax and appropriations as disclosed in the profit and loss
account prepared in accordance with the provisions of the Insurance Act, 1938
or rules made thereunder or the provision of Insurance Regulatory and
Development Authority Act, 1999 or regulations made thereunder.
(iii) Clause (b) of Rule 5 has been substituted to provide that any provision for
diminution in the value of investment debited to profit and loss account has to
be added back. Any gain or loss on realization of investments not credited or
debited to profit and loss account, shall be added or deducted, as the case
may be.
(iv) Accordingly, unrealized gains due to appreciation in the value of investments
will not be included in the total income and unrealized loss (i.e., provision for
diminution in the value of investment) is not allowable as deduction.
(Effective from A.Y.2011-12)
10. ASSESSMENT PROCEDURE
Time limit extended for issue of notification for relaxation, modification or
adaptation of any provision of law to facilitate centralized processing of returns
[Section 143(1B)]
A Centralised Processing Centre (CPC) has been set-up at Bangalore for centralised
processing of income-tax returns to determine the tax payable by, or the refund due to,
the assessee in a quick manner. With this intention, the Central Government may relax,
modify or adapt any provision of law relating to processing of returns subject to the
condition that the notification for such relaxation, modification or adaptation is issued on
or before 31st March, 2010 and the said notification is laid before each House of
Parliament. Though the centre has been set up at Bangalore where returns are
processed in batches, it is yet to become fully functional on a complete basis. Therefore
the time limit for issue of notification has been extended by one more year i.e. up to 31st
March, 2011, to relax, modify or adapt any provision of law relating to processing of
returns.
(Effective from 1
st
April, 2010)
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11. COLLECTION AND RECOVERY OF TAX
(a) Increase in threshold limits for attracting TDS provisions [Sections 194B,
194BB, 194C, 194D, 194H, 194-I & 194J]
The threshold limits for attracting TDS provisions under the different sections in
Chapter XVII have been increased with effect from 1st July, 2010, in order to reduce
compliance burden and provide for inflation adjustment. In effect, if the payments of
the nature specified in column (2) of the table below do not exceed the threshold
limits specified in column (3) (up to 30.6.2010) and column (4) (from 1.7.2010), no
deduction of tax is required to be made.
Section Nature Threshold limit (Rs.)
Existing
(upto
30.6.2010)
New
(w.e.f.
1.7.2010)
194B Winnings from lottery, crossword puzzle,
card game and other game of any sort
5,000 10,000
194BB Winnings from horse race 2,500 5,000
194C Payment to contractor for a single
transaction [See Note (1) below]
20,000 30,000
194D Insurance commission 5,000 20,000
194H Commission or brokerage 2,500 5,000
194I Rent 1,20,000 1,80,000
194J Fees for professional or technical
services, royalty or non-compete fees
referred to in section 28(va) [See Note
(2) below]
20,000 30,000
Notes
(1) With effect from 1.7.2010, even if a single payment to a contractor does not
exceed Rs.30,000, TDS provisions under section 194C would be attracted
where the aggregate of the amounts of such sums credited or paid or likely to
be credited or paid to the contractor during the financial year exceeds
Rs.75,000. The aggregate limit has been raised from Rs.50,000 to Rs.75,000.
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Example
ABC Ltd. makes the following payments to Mr.X, a contractor, for contract work
during the P.Y.2010-11
Rs.15,000 on 1.5.2010
Rs.25,000 on 1.8.2010
Rs.30,000 on 1.12.2010
On 1.3.2011, a payment of Rs.28,000 is due to Mr.X on account of a contract
work.
Discuss whether ABC Ltd. is liable to deduct tax at source under section 194C
from payments made to Mr.X.
In this case, the individual contract payments made to Mr.X up to 30.6.2010 does
not exceed Rs.20,000 and after 1.7.2010 does not exceed Rs.30,000. However,
since the aggregate amount paid to Mr.X during the P.Y.2010-11 exceeds
Rs.75,000 (on account of the last payment of Rs.28,000, due on 1.3.2011, taking
the total from Rs.70,000 to Rs.98,000), the TDS provisions under section 194C
would get attracted. Tax has to be deducted@1% on the entire amount of 98,000
from the last payment of Rs.28,000 and the balance of Rs.27,020 (i.e. Rs.28,000
980) has to be paid to Mr. X.
(2) The limit of Rs.30,000 under section 194J is applicable separately for fees for
professional services, fees for technical services, royalty and non-compete fees
referred to in section 28(va). It implies that if the payment to a person towards
each of the above is less than Rs.30,000, no tax is required to be deducted at
source, even though the aggregate payment or credit exceeds Rs.30,000.
Example
If XYZ Ltd. makes a payment of Rs.28,000 to Mr.Ganesh on 2.8.2010 towards
fees for professional services and another payment of Rs.25,000 to him on the
same date towards fees for technical services, TDS under section 194J would
not get attracted, since the limit of Rs.30,000 is applicable for fees for
professional services and fees for technical services, separately. It is
assumed that there is no other payment to Mr. Ganesh towards fees for
professional services and fees for technical services during the P.Y.2010-11.
(Effective from 1
st
(b) TDS/TCS Certificates to be furnished even after 1
July, 2010)
st
(i) The scheme for dematerialisation of TDS and TCS certificates was to be
implemented with effect from 1.4.2010. Accordingly, sections 203(3) and
proviso to section 206C(5) were introduced earlier which provided for waiving
April, 2010 [Sections 203 &
206C(5)]
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the requirement of furnishing TDS/TCS certificate in respect of tax deducted or
paid or collected on or after 1.4.2010.
(ii) Now, considering the importance of the document, i.e., TDS/TCS
certificate, it has been provided that the deductor/collector would continue
to furnish TDS/TCS certificates to the deductee/collectee even after
1.4.2010. Accordingly, sub-section (3) of section 203 and the first proviso
to section 206C(5) have been deleted.
(Effective from 1
st
12. SETTLEMENT COMMISSION
April, 2010)
(a) Proceedings for assessment or reassessment resulting from
search/requisition to fall within the definition of a case which can be
admitted by the Settlement Commission [Section 245A(b)]
(i) Section 245A(b) defines the term case as any proceeding for assessment, of
any person in respect of any assessment year or assessment years which may
be pending before an Assessing Officer on the date on which an application is
made to the Settlement Commission. However, proceedings for assessment or
reassessment resulting from a search or as a result of requisition of books of
account or other documents or any assets is specifically excluded from the
definition of case.
(ii) This section has been amended to provide that the proceedings for
assessment or reassessment resulting from search/requisition will fall within
the definition of a case which can be admitted by the Settlement
Commission.
(iii) In the case of a person whose income is being assessed or reassessed as a
result of search or as a result of requisition of books of account or other
documents or any assets, the proceedings for assessment or reassessment
shall be deemed to have commenced on the date of issue of notice initiating
such proceedings and concluded on the date on which the assessment is
made.
(Effective from 1
st
June, 2010)
Note - Similarly, section 22A of the Wealth-tax Act has also been amended, with
effect from 1
st
June, 2010, to
(i) include proceedings for assessment or reassessment resulting from a search
initiated under section 37A or requisition made under section 37B within the
definition of a case which can be admitted by the Settlement Commission; and
(ii) provide for the date of commencement and conclusion of such proceedings.
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(b) Increase in the threshold limit for additional amount of income-tax payable
on income disclosed in the application for admission of a case before the
Settlement Commission [Section 245C]
(i) As per section 245C, an application can be filed before the Settlement
Commission, only if the additional amount of income-tax payable on the
income disclosed in the application exceeds three lakh rupees.
(ii) Section 245A has been amended to provide that the proceedings for assessment
or reassessment resulting from search/requisition would fall within the definition
of a case which can be admitted by the Settlement Commission.
(iii) Consequently, section 245C has been amended to provide that the additional
amount of income-tax payable on income disclosed in the application should
exceed Rs.50 lakh, for an application to be made before the Settlement
Commission in such cases.
(iv) In other cases, the additional amount of income-tax payable on income
disclosed in the application should exceed Rs.10 lakh, for an application to be
made before the Settlement Commission.
(v) Such tax and interest thereon, which would have been payable had such
income been disclosed in the return of income before the Assessing Officer on
the date of application, should be paid on or before the date of making the
application. Further, proof of such payment should be attached with the
application.
(Effective from 1
st
June, 2010)
(c) Extension of time limit for passing of order by the Settlement Commission
[Section 245D(4A)]
(i) Section 245D(4A) stipulates that the Settlement Commission shall pass an
order within twelve months from the end of the month in which the application
was made.
(ii) The time limit has been extended from 12 months to 18 months in respect in
respect of an application made on or after 1st June, 2010.
(iii) However, in respect of applications made between 1st June, 2007 and 31
st
May, 2010, the time limit would continue to be 12 months from the end of the
month in which the application was made.
(Effective from 1
st
June, 2010)
Note Similarly, section 22D(4A) of the Wealth-tax Act, 1957, has been amended
to extend the time limit for the Settlement Commission to pass an order, from 12
months to 18 months in respect of an application made on or after 1st June, 2010.
However, in respect of applications made between 1st June, 2007 and 31
st
May,
2010, the time limit would continue to be 12 months from the end of the month in
which the application was made.
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39
13. APPEALS AND REVISION
High Court empowered to condone delay in filing of appeals [Section 260A(2A)]
(i) Under section 260A(2), an appeal against the order of Appellate Tribunal can be
filed before the High Court within a period of 120 days from the date of the receipt
of the order by the assessee or the Commissioner.
(ii) As per section 260A(7), the provisions of Code of Civil Procedure, 1908 relating to
appeals to the High Court, shall, as far as may be, apply in the case of an appeal
filed under this section before the High Court. The power to condone the delay is
contained in the Code of Civil Procedure, 1908 and therefore, by virtue of section
260A(7), it is implied that the High Court has the power to condone the delay on
sufficient cause being shown.
(iii) However, the High Courts, while considering this issue, have expressed divergent
views on their power to condone delay in filing of an appeal.
(iv) Therefore, in order to clarify the true legislative intent, sub-section (2A) has been
inserted in section 260A with retrospective effect from 1.10.1998 to specifically
provide that the High Court has and always had the power to condone the delay and
admit an appeal after the expiry of the period of 120 days, if it is satisfied that there
was sufficient cause for not filing the appeal within that period.
(Effective retrospectively from 1
st
October, 1998)
Note Similarly, sub-section (1A) has been inserted in section 27A of the Wealth-tax
Act, 1957 with retrospective effect from 1
st
October, 1998, to specifically provide that the
High Court has and always had the power to condone the delay and admit an appeal
after the expiry of the period of 120 days, if it is satisfied that there was sufficient cause
for not filing the appeal within that period.
14. MISCELLANEOUS PROVISIONS
Extension of date for issue of Document Identification Number [Section 282B]
(i) In order to improve the standards of service and transparency in the functioning of
the Income-tax Department, a computer based system of allotment and quoting of
Document Identification Number (DIN) in each correspondence sent or received by
the Income-tax Department was proposed to be introduced with effect from 1
st
(ii) Accordingly, section 282B was inserted by the Finance (No.2) Act, 2009, to provide
that every income-tax authority shall allot a computer generated Document
Identification Number in respect of every notice, order, letter or any correspondence
issued by him to any other income-tax authority or assessee or any other person
and such number shall be quoted thereon.
October, 2010 to facilitate tracking of documents and alleviate the taxpayers
grievances.
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40
(iii) Further, every document, letter or any correspondence, received by an income-tax
authority or on behalf of such authority, shall be accepted only after allotting and
quoting of a computer generated Document Identification Number.
(iv) Since it is essential to have the necessary infrastructure to cover the full range of
services specified in section 282B on pan-India basis, the date for implementation
of the DIN has been extended to 1
st
(Effective from 1
July, 2011.
st
IMPORTANT NOTIFICATIONS / CIRCULARS ISSUED BETWEEN 1.5.2009 AND 30.4.2010
October, 2010)
I CIRCULARS
1. Circular No. 7/2009 dated 22.10.2009
The CBDT has, through this circular, withdrawn the following circulars:
(a) Circular No. 23 issued on 23
rd
July 1969 regarding taxability of income accruing or
arising through, or from, business connection in India to a non-resident, under
section 9 of the Income-tax Act, 1961.
(b) Circulars No. 163 dated 29
th
May, 1975 and No.786 dated 7
th
February, 2000 which
provided clarification in respect of certain provisions of Circular No.23 dated 23
rd
July, 1969.
2. Circular No. 8/2009, dated 24.11.2009
The CBDT has, through this circular, clarified that TPAs (Third Party Administrators) who
are making payment on behalf of insurance companies to hospitals for settlement of
medical/insurance claims etc. under various schemes including cashless schemes are
liable to deduct tax at source under section 194J on all such payments to hospitals etc.
This is because the services rendered by hospitals to various patients are primarily
medical services and, therefore, the provisions of section 194J are applicable to
payments made by TPAs to hospitals etc.
Consequently, all such past transactions between TPAs and hospitals would fall within
the provisions of section 194J and consequence of failure to deduct tax or after
deducting tax failure to pay on all such transactions would make the deductor (TPAs)
deemed to be an assessee in default in respect of such tax and also liable for charging of
interest under section 201(1A) and penalty under section 271C.
However, no proceedings under section 201 may be initiated after the expiry of six years
from the end of the financial year in which payments have been made without deducting
tax at source etc. by the TPAs. Further, the tax demand arising out of section 201(1) in
situations arising above, may not be enforced if the deductor (TPA) satisfies the officer in
Copyright -The Institute of Chartered Accountants of India
41
charge of TDS that the relevant taxes have been paid by the deductee-assessee
(hospitals etc.). A certificate from the auditor of the deductee-assessee stating that the
tax and interest due from deductee-assessee has been paid for the assessment year
concerned would be sufficient compliance for the above purpose. However, this will not
alter the liability to charge interest under section 201(1A) till payment of taxes by the
deductee-assessee or liability for penalty under section 271C, as the case may be.
3. Circular No. 3/2010, dated 2.3.2010
The CBDT has, vide this circular, given a clarification regarding deduction of tax at
source on payment of interest on time deposits under section 194A by banks following
Core-branch Banking Solutions (CBS) software. It has been clarified that Explanation to
section 194A (See Note below) is not meant to apply in cases of banks where credit is
made to provisioning account on daily/monthly basis for the purpose of macro monitoring
only by the use of CBS software. It has been further clarified that since no constructive
credit to the depositors / payees account takes place while calculating interest on time
deposits on daily or monthly basis in the CBS software used by banks, tax need not be
deducted at source on such provisioning of interest by banks for the purposes of macro
monitoring only. In such cases, tax shall be deducted at source on accrual of interest at
the end of financial year or at periodic intervals as per practice of the bank or as per the
depositor's / payee's requirement or on maturity or on encashment of time deposits,
whichever event takes place earlier, whenever the aggregate of amounts of interest
income credited or paid or likely to be credited or paid during the financial year by the
banks exceeds the limits specified in section 194A.
Note The Explanation to section 194A provides that, for the purposes of this section,
where any income by way of interest other than interest on securities is credited to any
account, whether called Interest payable account or Suspense Account or by any other
name, in the books of account of the person liable to pay such income, such crediting
shall be deemed to be credit of such income to the account of the payee and the
provisions of this section shall apply accordingly.
II NOTIFICATIONS
1. Notification No. 67/2009 dated 9.9.2009
The Central Government has, vide notification no.67/2009 dated 9.9.2009, specified the
cost inflation index (CII) for the financial year 2009-10. The CII for F.Y. 2009-10 is 632.
S. No. Financial Year Cost Inflation Index
1. 1981-82 100
2. 1982-83 109
3. 1983-84 116
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42
4. 1984-85 125
5. 1985-86 133
6. 1986-87 140
7. 1987-88 150
8. 1988-89 161
9. 1989-90 172
10. 1990-91 182
11. 1991-92 199
12. 1992-93 223
13. 1993-94 244
14. 1994-95 259
15. 1995-96 281
16. 1996-97 305
17. 1997-98 331
18. 1998-99 351
19. 1999-2000 389
20. 2000-01 406
21. 2001-02 426
22. 2002-03 447
23. 2003-04 463
24. 2004-05 480
25. 2005-06 497
26. 2006-07 519
27. 2007-08 551
28. 2008-09 582
29. 2009-10 632
2. Notification No. 70/2009, dated 22.9.2009
The CBDT has, in exercise of the powers conferred by section 139(1B), made an
amendment in the notification of the Government of India relating to qualifications of an
e-Return intermediary. The qualifications of an e-Return Intermediary, as amended, are
detailed hereunder -
(1) An e-Return Intermediary shall have the following qualifications, namely:-
Copyright -The Institute of Chartered Accountants of India
43
(a) it must be a public sector company as defined in section 2(36A) of the Act or
any other company in which public are substantially interested within the
meaning of section 2(18) of the Act and any subsidiary of those companies; or
(b) a company incorporated in India, including a bank, having a net worth of
rupees one crore or more; or
(c) a firm of Chartered Accountants or Company Secretaries or Advocates, if it
has been allotted a permanent account number; or
(d) a Chartered Accountants or Company Secretaries or Advocates or Tax Return
Preparers, if he has been allotted a permanent account number; or
(e) a Drawing or Disbursing Officer (DDO) of a Government Department.
(2) The e-intermediary shall have at least class II digital signature certificate from any
of the Certifying authorities authorized to issue such certificates by the Controller of
Certifying authorities appointed under section 17 of the Information Technology Act,
2002.
(3) The e-intermediary shall have in place security procedure to the satisfaction of e-
Return Administrator to ensure that confidentiality of the assessees information is
properly secured.
(4) The e-intermediary shall have necessary archival, retrieval and, security policy for
the e-Returns which will be filed through him, as decided by e-Return Administrator
from time to time.
(5) The e-intermediary or its Principal Officer must not have been convicted for any
professional misconduct, fraud, embezzlement or any criminal offence.
3. Notification No. 94/2009, dated 18.12.2009
In exercise of the powers conferred by section 295 read with section 17(2), the CBDT
has, consequent to removal of FBT, substituted Rule 3 of the Income-tax Rules, 1962.
The new perquisite valuation rules shall be deemed to have come into force on 1
st
April,
2009.
For the purpose of computing the income chargeable under the head Salaries, the
value of perquisites provided by the employer directly or indirectly to the employee or to
any member of his household by reason of his employment shall be determined in
accordance with new Rule 3.
Valuation of residential accommodation [Sub-rule (1)]
The value of residential accommodation provided by the employer during the previous
year shall be determined in the following manner -
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44
Sl.
No.
Circumstances In case of unfurnished
accomodation
In case of furnished
accomodation
(1) (2) (3) (4)
(1) Where the
accommodation is
provided by the Central
Government or any
State Government to
the employees either
holding office or post in
connection with the
affairs of the Union or
of such State.
License fee determined by
the Central Government or
any State Government in
respect of accommodation
in accordance with the
rules framed by such
Government as reduced
by the rent actually paid by
the employee.
The value of perquisite as
determined under column
(3) and increased by 10%
per annum of the cost of
furniture (including
television sets, radio sets,
refrigerators, other
household appliances, air-
conditioning plant or
equipment).
If such furniture is hired
from a third party, the
actual hire charges payable
for the same as reduced by
any charges paid or
payable for the same by
the employee during the
previous year should be
added to the value of the
perquisite determined
under column (3).
(2) Where the
accommodation is
provided by any other
employer
(a) where the
accommodation
is owned by the
employer
(i) 15% of salary in
cities having
population
exceeding 25 lakhs
as per 2001
census;
(ii) 10% of salary in
cities having
population
The value of perquisite as
determined under column
(3) and increased by 10%
per annum of the cost of
furniture (including
television sets,
refrigerators, other
household appliances, air-
conditioning plant or
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45
exceeding 10 lakhs
but not exceeding
25 lakhs as per
2001 census;
(iii) 7.5% of salary in
other areas,
in respect of the period
during which the said
accommodation was
occupied by the employee
during the previous year
as reduced by the rent, if
any, actually paid by the
employee.
equipment or other similar
appliances or gadgets).
If such furniture is hired
from a third party, the
actual hire charges payable
for the same as reduced by
any charges paid or
payable for the same by
the employee during the
previous year, should be
added to the value of
perquisite determined
under column (3).
(b) where the
accommodation is
taken on lease or
rent by the
employer.
Actual amount of lease
rental paid or payable by
the employer or 15% of
salary, whichever is lower,
as reduced by the rent, if
any, actually paid by the
employee.
The value of perquisite as
determined under column
(3) and increased by 10%
per annum of the cost of
furniture (including
television sets, radio sets,
refrigerators, other
household appliances, air-
conditioning plant or
equipment or other similar
appliances or gadgets).
If such furniture is hired
from a third party, the
actual hire charges payable
for the same as reduced by
any charges paid or
payable for the same by
the employee during the
previous year should be
added to the value of
perquisite determined
under column (3).
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46
(3) Where the
accommodation is
provided by any
employer, whether
Government or any
other employer, in a
hotel.
Not applicable 24% of salary paid or
payable for the previous
year or the actual charges
paid or payable to such
hotel, which is lower, for
the period during which
such accommodation is
provided as reduced by
the rent, if any, actually
paid or payable by the
employee.
However, where the
employee is provided
such accommodation for a
period not exceeding in
aggregate fifteen days on
his transfer from one
place to another, there
would be no perquisite.
Notes:
(1) If an employee is provided with accommodation, on account of his transfer from one
place to another, at the new place of posting while retaining the accommodation at
the other place, the value of perquisite shall be determined with reference to only
one such accommodation which has the lower perquisite value, as calculated
above, for a period not exceeding 90 days and thereafter, the value of perquisite
shall be charged for both such accommodations.
(2) Any accommodation provided to an employee working at a mining site or an on-
shore oil exploration site or a project execution site, or a dam site or a power
generation site or an off-shore site would not be treated as a perquisite, provided it
satisfies either of the following conditions -
(i) the accommodation is of temporary nature, has plinth area not exceeding 800
square feet and is located not less than eight kilometers away from the local
limits of any municipality or a cantonment board; or
(ii) the accommodation is located in a remote area i.e. an area that is located at
least 40 kms away from a town having a population not exceeding 20,000
based on latest published all-India census.
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47
(3) Where the accommodation is provided by the Central Government or any State
Government to an employee who is serving on deputation with any body or
undertaking under the control of such Government,-
(i) the employer of such an employee shall be deemed to be that body or
undertaking where the employee is serving on deputation; and
(ii) the value of perquisite of such an accommodation shall be the amount
calculated in accordance with Sl. No.(2)(a) of the above table, as if the
accommodation is owned by the employer.
(4) Accommodation includes a house, flat, farm house or part thereof, or
accommodation in a hotel, motel, service apartment, guest house, caravan, mobile
home, ship or other floating structure.
(5) Hotel includes licensed accommodation in the nature of motel, service apartment
or guest house.
Motor Car [Sub-rule (2)]
The value of perquisite by way of use of motor car to an employee by an employer shall
be determined in the following manner -
VALUE OF PERQUISITE PER CALENDAR MONTH
Sl.
No.
Circumstances Where cubic capacity of
engine does not exceed
1.6 litres
Where cubic capacity of
engine exceeds 1.6
litres
(1) (2) (3) (4)
(1)
(a)
Where the motor car is
owned or hired by the
employer and
is used wholly and
exclusively in the
performance of his
official duties
Not a perquisite, provided
the documents specified
in Note (2) below the
table are maintained by
the employer.
Not a perquisite, provided
the documents specified
in Note (2) below the
table are maintained by
the employer.
(b) is used exclusively for
the private or personal
purposes of the
employee or any
member of his
household and the
Actual amount of
expenditure incurred by
the employer on the
running and maintenance
of motor car during the
relevant previous year
Actual amount of
expenditure incurred by
the employer on the
running and maintenance
of motor car during the
relevant previous year
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48
running and
maintenance
expenses are met or
reimbursed by the
employer;
including remuneration, if
any, paid by the employer
to the chauffeur as
increased by the amount
representing normal wear
and tear of the motor car
and as reduced by any
amount charged form the
employee for such use.
including remuneration, if
any, paid by the employer
to the chauffeur as
increased by the amount
representing normal wear
and tear of the motor car
and as reduced by any
amount charged form the
employee for such use.
(c) is used partly in the
performance of duties
and partly for private
or personal purposes
of his own or any
member of his
household and-
(i) the expenses on
maintenance and
running are met
or reimbursed by
the employer
Rs.1,800 (plus Rs.900, if
chauffeur is also provided
to run the motor car)
Rs.2,400 (plus Rs.900, if
chauffeur is also provided
to run the motor car)
(ii) the expenses on
running and
maintenance for
private or
personal use are
fully met by the
assessee.
Rs.600 (plus Rs.900, if
chauffeur is also provided
by the employer to run
the motor car)
Rs.900 (plus Rs.900, if
chauffeur is also provided
by the employer to run the
motor car)
(2) Where the employee
owns a motor car but
the actual running and
maintenance charges
(including remuneration
of the chauffeur, if any)
are met or reimbursed
to him by the employer
and
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49
(i) such reimbursement is
for the use of the
vehicle wholly and
exclusively for official
purposes
Not a perquisite, provided
the documents specified
in Note (2) below the
table are maintained by
the employer.
Not a perquisite, provided
the documents specified
in Note (2) below the
table are maintained by
the employer.
(ii) such reimbursement is
for the use of the
vehicle partly for
official purposes and
partly for personal or
private purposes of the
employee or any
member of his
household.
The actual amount of
expenditure incurred by
the employer as
reduced by the amount
specified in Sl. No.
(1)(c)(i) above (Also see
note (2) below this
table).
The actual amount of
expenditure incurred by
the employer as reduced
by the amount specified in
Sl. No. (1)(c)(i) above
(Also see note (2) below
this table).
(3)
(i)
Where the employee
owns any other
automotive conveyance
but the actual running
and maintenance
charges are met or
reimbursed to him by
the employer and
such reimbursement is
for the use of the
vehicle wholly and
exclusively for official
purposes
Not a perquisite, provided
the documents specified
in the note (2) below the
table are maintained by
the employer.
Not applicable.
(ii) such reimbursement is
for the use of vehicle
partly for official
purposes and partly for
personal or private
purposes of the
employee
The actual amount of
expenditure incurred by
the employer as
reduced by the amount
of Rs.900. (Also see
note (2) below the table)
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50
Notes:
(1) Where one or more motor-cars are owned or hired by the employer and the
employee or any member of his household are allowed the use of such motor-car or
all of any of such motor-cars (otherwise than wholly and exclusively in the
performance of his duties), the value of perquisite shall be the amount calculated in
respect of one car as if the employee had been provided one motor-car for use
partly in the performance of his duties and partly for his private or personal
purposes and the amount calculated in respect of the other car or cars as if he had
been provided with such car or cars exclusively for his private or personal purposes.
(2) Where the employer or the employee claims that the motor-car is used wholly and
exclusively in the performance of official duty or that the actual expenses on the
running and maintenance of the motor-car owned by the employee for official
purposes is more than the amounts deductible in Sl. No. 2(ii) or 3(ii) of the above
table, he may claim a higher amount attributable to such official use and the value
of perquisite in such a case shall be the actual amount of charges met or
reimbursed by the employer as reduced by such higher amount attributable to
official use of the vehicle provided that the following conditions are fulfilled :-
(a) the employer has maintained complete details of journey undertaken for official
purpose which may include date of journey, destination, mileage, and the
amount of expenditure incurred thereon;
(b) the employer gives a certificate to the effect that the expenditure was incurred
wholly and exclusively for the performance of official duties.
(3) For computing the perquisite value of motor car, the normal wear and tear of a motor-
car shall be taken at 10% per annum of the actual cost of the motor-car or cars.
Valuation of benefit of provision of domestic servants [Sub-rule (3) of Rule 3]
(i) The value of benefit to the employee or any member of his household resulting from
the provision by the employer of the services of a sweeper, a gardener, a watchman
or a personal attendant, shall be the actual cost to the employer.
(ii) The actual cost in such a case shall be the total amount of salary paid or payable by
the employer or any other person on his behalf for such services as reduced by any
amount paid by the employee for such services.
Valuation of gas, electricity or water supplied by employer [Sub-rule (4) of Rule 3]
(i) The value of the benefit to the employee resulting from the supply of gas, electric
energy or water for his household consumption shall be determined as the sum
equal to the amount paid on that account by the employer to the agency supplying
the gas, electric energy or water.
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51
(ii) Where such supply is made from resources owned by the employer, without
purchasing them from any other outside agency, the value of perquisite would be
the manufacturing cost per unit incurred by the employer.
(iii) Where the employee is paying any amount in respect of such services, the amount
so paid shall be deducted from the value so arrived at.
Valuation of free or concessional educational facilities [Sub-rule (5) of Rule 3]
(i) The value of benefit to the employee resulting from the provision of free or
concessional educational facilities for any member of his household shall be
determined as the sum equal to the amount of expenditure incurred by the employer
in that behalf or where the educational institution is itself maintained and owned by
the employer or where free educational facilities for such member of employees
household are allowed in any other educational institution by reason of his being in
employment of that employer, the value of the perquisite to the employee shall be
determined with reference to the cost of such education in a similar institution in or
near the locality.
(ii) Where any amount is paid or recovered from the employee on that account, the
value of benefit shall be reduced by the amount so paid or recovered.
(iii) However, where the educational institution itself is maintained and owned by the
employer and free educational facilities are provided to the children of the employee
or where such free educational facilities are provided in any institution by reason of
his being in employment of that employer, there would be no perquisite if the cost of
such education or the value of such benefit per child does not exceed Rs.1,000 p.m.
Free or concessional tickets [Sub-rule (6) of Rule 3]
The value of any benefit or amenity resulting from the provision by an employer who is
engaged in the carriage of passengers or goods, to any employee or to any member of
his household for personal or private journey free of cost or at concessional fare, in any
conveyance owned, leased or made available by any other arrangement by such
employer for the purpose of transport of passengers or goods shall be taken to be the
value at which such benefit or amenity is offered by such employer to the public as
reduced by the amount, if any, paid by or recovered from the employee for such benefit
or amenity.
However, there would be no such perquisite to the employees of an airline or the
railways.
Valuation of other fringe benefits and amenities [Sub-rule (7) of Rule 3]
Section 17(2)(viii) provides that the value of any other fringe benefit or amenity as may
be prescribed would be included in the definition of perquisite. Accordingly, the following
Copyright -The Institute of Chartered Accountants of India
52
other fringe benefits or amenities are prescribed and the value thereof shall be
determined in the manner provided hereunder :-
(i) Interest-free or concessional loan [Sub-rule 7(i) of Rule 3]
(a) The value of the benefit to the assessee resulting from the provision of
interest-free or concessional loan for any purpose made available to the
employee or any member of his household during the relevant previous year
by the employer or any person on his behalf shall be determined as the sum
equal to the interest computed at the rate charged per annum by the State
Bank of India, as on the 1
st
day of the relevant previous year in respect of
loans for the same purpose advanced by it on the maximum outstanding
monthly balance as reduced by the interest, if any, actually paid by him or any
such member of his household. Maximum outstanding monthly balance
means the aggregate outstanding balance for each loan as on the last day of
each month.
(b) However, no value would be charged if such loans are made available for
medical treatment in respect of prescribed diseases (like cancer, tuberculosis,
etc.) or where the amount of loans are petty not exceeding in the aggregate
Rs.20,000.
(c) Further, where the benefit relates to the loans made available for medical
treatment referred to above, the exemption so provided shall not apply to so
much of the loan as has been reimbursed to the employee under any medical
insurance scheme.
(ii) Travelling, touring and accommodation [Sub-rule 7(ii) of Rule 3]
(a) The value of travelling, touring, accommodation and any other expenses paid
for or borne or reimbursed by the employer for any holiday availed of by the
employee or any member of his household, other than leave travel concession
or assistance, shall be determined as the sum equal to the amount of the
expenditure incurred by such employer in that behalf.
(b) Where such facility is maintained by the employer, and is not available
uniformly to all employees, the value of benefit shall be taken to be the value
at which such facilities are offered by other agencies to the public.
(c) Where the employee is on official tour and the expenses are incurred in
respect of any member of his household accompanying him, the amount of
expenditure so incurred shall also be a fringe benefit or amenity.
(d) However, where any official tour is extended as a vacation, the value of such
fringe benefit shall be limited to the expenses incurred in relation to such
extended period of stay or vacation. The amount so determined shall be
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reduced by the amount, if any, paid or recovered from the employee for such
benefit or amenity.
(iii) Free or concessional food and non-alcoholic beverages [Sub-rule 7(iii) of Rule 3]
(a) The value of free food and non-alcoholic beverages provided by the employer
to an employee shall be the amount of expenditure incurred by such employer.
The amount so determined shall be reduced by the amount, if any, paid or
recovered from the employee for such benefit or amenity:
(b) However, the following would not be treated as a perquisite -
(1) free food and non-alcoholic beverages provided by such employer during
working hours at office or business premises or through paid vouchers
which are not transferable and usable only at eating joints, to the extent
the value thereof either case does not exceed fifty rupees per meal or
(2) tea or snacks provided during working hours or
(3) free food and non-alcoholic beverages during working hours provided in a
remote area or an off-shore installation.
(iv) Value of gift, voucher or token in lieu of such gift [Sub-rule 7(iv) of Rule 3]
(a) The value of any gift, or voucher, or token in lieu of which such gift may be
received by the employee or by member of his household on ceremonial
occasions or otherwise from the employer shall be determined as the sum
equal to the amount of such gift:
(b) However, if the value of such gift, voucher or token, as the case may be, is
below Rs.5,000 in the aggregate during the previous year, the value of
perquisite shall be taken as nil.
(v) Credit card expenses [Sub-rule 7(v) of Rule 3]
(a) The amount of expenses including membership fees and annual fees incurred
by the employee or any member of his household, which is charged to a credit
card (including any add-on-card) provided by the employer, or otherwise, paid
for or reimbursed by such employer shall be taken to be the value of perquisite
chargeable to tax as reduced by the amount, if any paid or recovered from the
employee for such benefit or amenity:
(b) However, such expenses incurred wholly and exclusively for official purposes
would not be treated as a perquisite if the following conditions are fulfilled.
(1) complete details in respect of such expenditure are maintained by the
employer which may, inter alia, include the date of expenditure and the
nature of expenditure;
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(2) the employer gives a certificate for such expenditure to the effect that the
same was incurred wholly and exclusively for the performance of official
duties.
(vi) Club expenditure [Sub-rule 7(vi) of Rule 3]
(a) The value of benefit to the employee resulting from the payment or
reimbursement by the employer of any expenditure incurred (including the
amount of annual or periodical fee) in a club by him or by a member of his
household shall be determined to be the actual amount of expenditure incurred
or reimbursed by such employer on that account. The amount so determined
shall be reduced by the amount, if any, paid or recovered from the employee
for such benefit or amenity.
However, where the employer has obtained corporate membership of the club
and the facility is enjoyed by the employee or any member of his household,
the value of perquisite shall not include the initial fee paid for acquiring such
corporate membership.
(b) Further, if such expenditure is incurred wholly and exclusively for business
purposes, it would not be treated as a perquisite provided the following
conditions are fulfilled:-
(1) complete details in respect of such expenditure are maintained by the
employer which may, inter alia, include the date of expenditure, the
nature of expenditure and its business expediency;
(2) the employer gives a certificate for such expenditure to the effect that the
same was incurred wholly and exclusively for the performance of official
duties.
(c) There would be no perquisite for use of health club, sports and similar facilities
provided uniformly to all employees by the employer.
(vii) Use of moveable assets [Sub-rule 7(vii) of Rule 3]
The value of benefit to the employee resulting from the use by the employee or any
member of his household of any movable asset (other than assets already specified
in this rule and other than laptops and computers) belonging to the employer or
hired by him shall be determined at 10% per annum of the actual cost of such asset
or the amount of rent or charge paid or payable by the employer, as the case may
be, as reduced by the amount, if any, paid or recovered from the employee for such
use.
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(viii) Transfer of moveable assets [Sub-rule 7(viii) of Rule 3]
The value of benefit to the employee arising from the transfer of any movable asset
belonging to the employer, directly or indirectly, to the employee or any member of
his household shall be determined to be the amount representing the actual cost of
such assets to the employer as reduced by the cost of normal wear and tear and as
further reduced by the amount, if any, paid or recovered from the employee being
the consideration for such transfer.
The cost of normal wear and tear has to be calculated at the rate of 10% of the
actual cost for each completed year during which such asset was put to use by the
employer. However, in the case of computers and electronic items, the normal wear
and tear would be calculated at the rate of 50% and in the case of motor cars at the
rate of 20% by the reducing balance method.
(ix) Other benefit or amenity [Sub-rule 7(ix) of Rule 3]
The value of any other benefit or amenity, service, right or privilege provided by the
employer shall be determined on the basis of cost to the employer under an arms
length transaction as reduced by the employees contribution, if any. However, the
expenses on telephones including a mobile phone actually incurred on behalf of the
employee by the employer, would not be a taxable perquisite.
Valuation of specified security or sweat equity share for the purpose of section 17(2)(vi)
[Sub-rule (8)]
The fair market value of any specified security or sweat equity share, being an equity share in
a company, on the date on which the option is exercised by the employee, shall be determined
in the following manner -
(1) In a case where, on the date of the exercising of the option, the share in the company is
listed on a recognized stock exchange, the fair market value shall be the average of the
opening price and closing price of the share on that date on the said stock exchange.
However, where, on the date of exercising of the option, the share is listed on more than
one recognized stock exchanges, the fair market value shall be the average of opening
price and closing price of the share on the recognised stock exchange which records the
highest volume of trading in the share.
Further, where on the date of exercising of the option, there is no trading in the share on
any recognized stock exchange, the fair market value shall be
(a) the closing price of the share on any recognised stock exchange on a date closest
to the date of exercising of the option and immediately preceding such date; or
(b) the closing price of the share on a recognised stock exchange, which records the
highest volume of trading in such share, if the closing price, as on the date closest
to the date of exercising of the option and immediately preceding such date, is
recorded on more than one recognized stock exchange.
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Closing price of a share on a recognised stock exchange on a date shall be the price of
the last settlement on such date on such stock exchange. However, where the stock
exchange quotes both buy and sell prices, the closing price shall be the sell price of
the last settlement.
Opening price of a share on a recognised stock exchange on a date shall be the price
of the first settlement on such date on such stock exchange. However, where the stock
exchange quotes both buy and sell prices, the opening price shall be the sell price of
the first settlement.
(2) In a case where, on the date of exercising of the option, the share in the company is not
listed on a recognised stock exchange, the fair market value shall be such value of the
share in the company as determined by a merchant banker on the specified date.
For this purpose, specified date means,
(i) the date of exercising of the option; or
(ii) any date earlier than the date of the exercising of the option, not being a date which
is more than 180 days earlier than the date of the exercising.
Valuation of specified security not being an equity share in a company for the purpose
of section 17(2)(vi) [Sub-rule (9)]
The fair market value of any specified security, not being an equity share in a company, on the
date on which the option is exercised by the employee, shall be such value as determined by
a merchant banker on the specified date.
For this purpose, specified date means,
(i) the date of exercising of the option; or
(ii) any date earlier than the date of the exercising of the option, not being a date which is
more than 180 days earlier than the date of the exercising.
Definitions for the purpose of perquisite rules
The following definitions are relevant for applying the perquisite valuation rules -
(i) member of household shall include-
(a) spouse(s),
(b) children and their spouses,
(c) parents, and
(d) servants and dependants;
(ii) salary includes the pay, allowances, bonus or commission payable monthly or
otherwise or any monetary payment, by whatever name called from one or more
employers, as the case may be, but does not include the following, namely:-
(a) dearness allowance or dearness pay unless it enters into the computation of
superannuation or retirement benefits of the employee concerned;
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(b) employers contribution to the provident fund account of the employee;
(c) allowances which are exempted from payment of tax;
(d) the value of perquisites specified in clause (2) of section 17 of the Income-tax Act;
(e) any payment or expenditure specifically excluded under proviso to sub-clause (iii) of
clause (2) or proviso to clause (2) of section 17;
(f) lump-sum payments received at the time of termination of service or superannuation
or voluntary retirement, like gratuity, severance pay, leave encashment, voluntary
retrenchment benefits, commutation of pension and similar payments;
4. Notification No. 07/2010, dated 3.2.2010
Section 10(15)(iv)(h) exempts interest on bonds/debentures issued by any public sector
company and notified by the Central Government in the Official Gazette. Accordingly,
the Central Government has notified the tax free secured, redeemable, non-convertible
Railway Bonds issued by the Indian Railway Finance Corporation (IRFC), interest from
which would be exempt under section 10(15)(iv)(h).
5. Notification No. 08/2010 dated 3.2.2010 & Notification No.24/2010 dated 8.4.2010
Section 2(48) defining zero coupon bonds requires that such bonds should be notified by
the Central Government. Accordingly, the Central Government has specified the
following bonds as zero coupon bonds for the purpose of section 2(48)
(i) Bhavishya Nirman Bond, a ten year zero coupon bond of National Bank of
Agriculture and Rural Development (NABARD), to be issued on or before 31.3.2011
(ii) ten year Deep Discount Bond (Zero Coupon Bond) of Rural Electrification
Corporation Limited (REC) to be issued on or before 31.3.2011.
6. Notification No 23/2010 dated 8.4.2010
The Finance (No. 2) Act, 2009 had inserted clause (vii) in section 56(2) to bring within its
scope, the value of any property received without consideration or for inadequate
consideration. The said clause provides that, if a property other than immovable property
is received without consideration, the aggregate fair market value of such property on the
date of receipt would be taxed as the income of the recipient if it exceeds Rs.50,000. In
case the property other than immovable property is received for inadequate
consideration, and the difference between the aggregate fair market value and such
consideration exceeds Rs.50,000, such difference would be taxed as the income of the
recipient. For this purpose, fair market value of a property, other than immovable
property, means the value determined in accordance with the method as may be
prescribed.
Accordingly, the CBDT has, vide this notification, made rules for determination of fair
market value of the property other than immovable property, which would be effective
from 1
st
October, 2009.
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(a) Valuation of jewellery
(i) the fair market value of jewellery shall be estimated to be the price which such
jewellery would fetch if sold in the open market on the valuation date;
(ii) in case the jewellery is received by the way of purchase on the valuation date,
from a registered dealer, the invoice value of the jewellery shall be the fair
market value;
(iii) In case the jewellery is received by any other mode and the value of the
jewellery exceeds Rs.50,000, then, the assessee may obtain the report of
registered valuer in respect of the price it would fetch if sold in the open market
on the valuation date.
(b) Valuation of archeological collections, drawings, paintings, sculptures or any
work of art
(i) the fair market value of archeological collections, drawings, paintings,
sculptures or any work of art (artistic work) shall be estimated to be price
which it would fetch if sold in the open market on the valuation date;
(ii) in case the artistic work is received by the way of purchase on the valuation
date, from a registered dealer, the invoice value of the artistic work shall be the
fair market value;
(iii) in case the artistic work is received by any other mode and the value of the
artistic work exceeds Rs.50,000, then, the assessee may obtain the report of
registered valuer in respect of the price it would fetch if sold in the open market
on the valuation date.
(c) Valuation of shares and securities
(a) the fair market value of quoted shares and securities shall be determined in
the following manner, namely;-
(i) if the quoted shares and securities are received by way of transaction
carried out through any recognized stock exchange, the fair market value
of such shares and securities shall be the transaction value as recorded
in such stock exchange;
(ii) if such quoted shares and securities are received by way of transaction
carried out other than through any recognized stock exchange, the fair
market value of such shares and securities shall be,-
(1) the lowest price of such shares and securities quoted on any
recognized stock exchange on the valuation date, and
(2) the lowest price of such shares and securities on any recognized
stock exchange on a date immediately preceding the valuation date
when such shares and securities were traded on such stock
exchange, in cases where on the valuation date, there is no trading
in such shares and securities on any recognized stock exchange.
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(b) the fair market value of unquoted equity shares shall be the value, on the
valuation date, of such unquoted equity shares as determined in the following
manner namely;-
The fair market value of unquoted equity shares = ) PV (
PE
) L A (
Where,
A= Book value of the assets in Balance Sheet drawn up on the valuation date
as reduced by any amount paid as advance tax under the Income-tax Act
and any amount shown in the balance sheet including the debit balance
of the profit and loss account or the profit and loss appropriation account
which does not represent the value of any asset.
L = Book value of liabilities shown in the Balance Sheet drawn up on the
valuation date but not including the following amounts:-
(i) the paid-up capital in respect of equity shares;
(ii) the amount set apart for payment of dividends on preference shares
and equity shares where such dividends have not been declared before
the date of transfer at a general body meeting of the company;
(iii) reserves, by whatever name called, other than those set apart
towards depreciation;
(iv) credit balance of the profit and loss account;
(v) any amount representing provision for taxation, other than amount
paid as advance tax under the Income-tax Act, to the extent of the
excess over the tax payable with reference to the book profits in
accordance with the law applicable thereto;
(vi) any amount representing provisions made for meeting liabilities,
other than ascertained liabilities;
(vii) any amount representing contingent liabilities other than arrears of
dividends payable in respect of cumulative preference shares.
PE = Total amount of paid up equity share capital as shown in Balance Sheet
drawn up on the valuation date.
PV = the paid up value of such equity shares.
(c) the fair market value of unquoted shares and securities other than equity
shares in a company which are not listed in any recognized stock exchange
shall be estimated to be price it would fetch if sold in the open market on the
valuation date and the assessee may obtain a report from a merchant banker
or an accountant in respect of such valuation.
Note Valuation date means the date on which the respective property is
received by the assessee.
Copyright -The Institute of Chartered Accountants of India